Argentina, Latin America lead market lower; Turkey firm; primary becalmed but Asian corporates set talk

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, July 24 - Emerging market bonds fell pretty much across the board Tuesday, with Latin America leading the way and Argentina in particular suffering the worst pounding.

Venezuela also was in retreat. Philippines debt was another big loser, after Fitch Ratings issued a deficit warning. Russian bonds were seen outperforming the market while Turkey continued to enjoy the market momentum arising from its successful weekend elections.

Investors were said to be spooked by continued fears that the surface has only been scratched in the ongoing troubles of the U.S. subprime mortgage market - and that the fallout from that debacle may endanger other financial markets, including more risky areas such as emerging markets.

Primary market deals waiting to price were static as the secondary market was shaken.

No deals were able to price, yet Asian corporates were busy releasing talk and one new deal surfaced, although Ukraine's Industrial Union of Donbass (ISD) pulled its offer and went home.

"The market's been really tough," said an emerging markets syndicate official who then commented about the "big number" of emerging markets deals which have been pulled in recent weeks.

Looking ahead, market players are eagerly eyeing the $900 million to be offered by Transportadora de Gas del Interior SA and the benchmark-sized offer from OAO Gazprom, one emerging markets syndicate official said.

A source close to the Gazprom deal said "reception has been extremely positive" for the well known issuer. More information about the structure and timing is expected within the next two days.

Busy Asian corporates

Thailand's True Move Co. released talk in the area of 10% for its upcoming $230 million sale of seven-year senior unsecured notes (B1/B).

Deutsche Bank has the books for the Bangkok-based mobile phone service provider.

Pricing is expected on Wednesday.

The proceeds from the bond offering are expected to refinance the company's outstanding long-term Thai baht-denominated syndicated loan facility.

Pakistan's Azgard-9 Ltd. issued talk of 10¼% to 10½% for its planned $200 million to $260 million seven-year senior unsecured notes (B2/B+).

Citigroup will take the books for the deal expected to price this week.

The bonds feature four years of call protection.

Iskanderabad-based Azgard will use the proceeds from the sale to refinance a large portion of the group's corporate debt, which was incurred for the acquisition of Pak American Fertilizer Ltd. in 2006.

Indonesia's PT Mobile-8 Telecom announced Lehman Brothers will bring its $150 million seven-year bonds (B2/B) to market.

The bonds carry four years of call protection.

The Jakarta, Indonesia-based telecommunications company will end its roadshow on Thursday.

Shenzhen, China-based Hong Long Holdings Ltd. set the expected size of its senior unsecured notes (B2/B) at $175 million to $200 million, with an anticipated maturity of between five years and seven years.

The timing of the Citigroup-led deal remains to be determined.

Proceeds will be used to refinance existing debt including a temporary secured loan, as well as to acquire new projects, add to the company's land bank and for general corporate purposes.

Donbass pulls deal

The latest casualty of the current market is Ukraine's Donbass, which announced the withdrawal of its dollar-dominated five-year bonds (B1/B+).

Preliminary guidance of 9% to 9¼% had been released.

JP Morgan and Citigroup were to be bookrunners for the deal.

The Donetsk, Ukraine-based industrial materials manufacturer decided to pull the deal due to current market conditions and will pursue other financing alternatives.

EMBI+ wider by 11 bps

While U.S. Treasuries sizzled in a flight-to-safety reaction that took the yield on Washington's benchmark 10-year bonds down 5 basis points on the session to 4.90% - the lowest level since the beginning of June - emerging debt fizzled, as prices fell and yields rose. JP Morgan & Co.'s closely watched EMBI+ index of emerging debt investor risk aversion - as measured by the average spread over Treasuries - ballooned out another 11 bps Tuesday to stand at a bloated 193 bps. That is the widest spread seen since early March, when EM was in a panicky reaction to a Chinese stock market meltdown, and is far wider than the all-time tight levels in the upper 140s seen in May.

Argentina takes a tumble

Argentina's bonds widened out the most, by 36 bps on average, to stand at a yawning 390 bps over Treasuries, their widest levels in 13 months.

A New York-based trader in Latin American debt saw "massive [spread] widening across the board," with Argentina and Venezuela as "the big standouts."

He estimated that the Latin American issues were anywhere from 5 bps to 30 bps wider.

He said that looking that whole of the EM market, Russian bonds were the day's outperformer, with the 2030 issue the best, while Argentina's dollar-denominated Discount bonds were the worst of the underperformers, down at least 3 points on the session.

He said that Ecuador's bonds also were weak, "across the board, along with everything else."

Argentina's markets - including its equity market and in foreign exchange trading, its peso, as well as its bonds - "simply crashed," a market source said. While those markets were weak from the get-go, continuing downside momentum seen Monday amid investor risk jitters, "the worst part came later, when stop-losses were triggered, and the bids couldn't support the bond avalanche."

With the peso falling to its lowest level against the dollar and other currencies since March 2003, the country's benchmark peso-denominated Discount bonds dropped 3 points to a bid level of 90.5.

A market source saw the Argentine Par bonds in pesos down more than 2.5% on the day to 49 bid.

The yield on the nation's 5.83% inflation-linked bonds due 2033 widened by about ¼ of a percentage point, to 6.95% - its highest level in a year.

A market source said that generally, Latin American credit spreads were "significantly wide."

Besides Argentina's 36 bps widening, Venezuela was not much better, widening out by 28 bps on average. The latter country's 9¼% dollar-denominated benchmark bonds due 2027 lost more than 2½ points on the day, tumbling to 106.5 - the lowest level in almost a month - while the yield on those bonds zoomed by nearly ¼ of a percentage point to a swollen 8.57%.

Brazil slightly easier

Among the general rout, led by the risky high-beta names like Argentina and Venezuela, even the normally solid-performing Latin credits like Brazil, Colombia and Panama were all seen having widened by around 5 bps to 7 bps, leading a market source to characterize the day as "one of the worst days we've seen in some time, given the breadth of weakness."

Brazil's benchmark zero-coupon real-denominated bonds due 2008 were seen down slightly, in line with a 0.2% drop in the currency, with the bonds' yield rising by 1 bp to 11.05%.

Its widely traded and very liquid 11% dollar-denominated global bonds due 2040 were quoted down about 1/3 point to 130.813 at the close.

Philippines down on Fitch warning

Outside of Latin America, Philippine government bonds were seen in retreat after Fitch Ratings warned that Manila's fiscal deficit may almost double this year, blaming lower-than-expected revenues.

The country's dollar-denominated benchmark 2031 bonds slid to 108.875 and its 2032s to 10 95.25, each down nearly half a point on the session.

The price of a five-year credit default swaps contract linked to that debt widened out by 7 or 8 bps over Monday's levels to 141/146 bps.

In its research report, Fitch projected that without asset sales, the budget deficit could grow to 125 billion pesos - and in that case, absent "a significant improvement" in tax collection, "it will not be possible for the Philippine government to implement its ambitious - and much-needed - infrastructure development program," which in turn would hinder economic growth.

Turkish bonds stay strong

Turkey's bonds were one of the few bright spots in an overall gloomy emerging markets secondary picture, with the yield on the benchmark bonds due 2009 falling to 17.18%, a 7 bps pickup on the session - and well below last week's closing levels at 17.43%.

However, its global bonds due 2030 - which had also firmed smartly in Monday's post-election bounce - were quoted having eased a little from those heady peak levels, finishing off ½ point at 153.5 bid.

Turkish bonds were seen continuing to hold most of their gains, or in the case of the shorter bonds, even improve upon them, in the wake of the successful parliamentary elections held over the weekend, which returned the ruling AK Party of prime minister Tayyip Erdogan to power with a solid mandate - but not so much of an advantage as to provoke opposition from the armed forces, which see themselves as the guardians of Turkey's secular heritage. While his party will dominate the incoming parliament, it will not have the two-thirds "supermajority" needed to push through changes in the country's constitution, such as shifting the power to elect a president to the voters rather than keeping the current system of having Parliament pick the president.

Erdogan - considered a pro-business moderate, but one with an Islamist background - will have to negotiate with the smaller parties in order to enact the reforms he seeks, such as the direct presidential election. Following the election, he made conciliatory post-election gestures towards the secularists wary that he might try to turn the country in a more sectarian direction.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.